‘Domestic economy determines interest rate’

The Executive Director/Chief Financial Officer (CFO), FirstBank of Nigeria Limited, Adesola Adeduntan, says the bank’s Capital Adequacy Ratio is strong and that it has raised $450 million Tier-2 Capital. At an interactive session with select journalists in Lagos, he spoke on the state of the economy, high interest rate and the re-introduced Automated Teller Machine (ATM) charge. He said despite regulatory challenges, FirstBank has repositioned for growth. COLLINS NWEZE was there.

Banks’ lending rates are mainly determined by the state of domestic economy, the Executive Director/Chief Financial Officer (CFO), FirstBank of Nigeria Limited, Adesola Adeduntan, has said.

At an interactive session with the media in Lagos, he said part of the strategic objective of the Central Bank of Nigeria (CBN) is to ensure that interest rate goes down overtime, adding that commercial banks are in support of the policy direction.

On the rising cost of banking operation, the bank director said the operational expenses of lenders are also reflective of the level of the infrastructure available in the domestic environment.

“For example, if you have a branch at a location where electricity is not readily available or where the supply from the national grid is epileptic, then you need to be able to provide your own standby generator. Most branches of banks across the country tend to operate on generator because they do not want to be switching on and off on the national grid.

Again, your customers expect 24/7 access to their banking data base because, as I mentioned to you earlier on, people can now transact banking businesses in the comfort of their homes. So irrespective of the opening and closing time of branches, you could sit in the comfort of your home at 10pm and effect banking transactions,” he said.

Continuing, he said: “As a bank, we have been focusing enough on our own expenditure. We do have a framework which we manage our expenses but the reality is that given where we operate, the cost are there. But we are working and managing them. We do have a strategy with which we are curtailing our cost. Like I said, fundamentally, the government is dealing with most of the issues that is responsible for the high operating cost environment. It is not just the banking sector; it is also applicable to the manufacturing sector and also to the telecom sector,” he said.

Banking regulation

Adeduntan explained that regulation is a key component of banking all over the world adding that the ability of financial institution to survive and survive very well depends significantly on its ability to manage regulatory issues and regulatory pronouncements.

“It also depends of a bank’s ability wrap its business strategy around such regulatory pronouncement and challenges. So, in our own case, it is true that there have been significant regulatory pronouncements over the past few months. We have responded by tinkering with our business model and repositioning our business in such a way and manner that enables us to continue to grow despite all those regulatory challenges,” he said.

Lending/ risk management

He said FirstBank is managed very prudently and enjoys sound risk management structure. “We do have a very strong governance structure, starting with our board of directors in which we have very strong people, very knowledgeable people; we also have a very strong executive management team under the leadership of our group managing director.

What that does is we have the platform, the knowledge and technical base to be able to embark on those types of lending that we are into. We do have a very robust credit risk management system and framework where we upfront, have our credit strategy and pro-active risk management policy that limits our exposures by business sectors, by geography, by product and by customers,” he said.

The CFO said these policies and framework essentially cap the bank’s exposure within sectors, subsectors and to certain categories.

“Although we are the largest financial institution in Nigeria, those exposures that you are seeing have been prudently determined, evaluated and they all fall within our internal benchmarks for those sectors. Also, a bank cannot exist in a vacuum; the balance sheet of a bank will be a reflection of the opportunities available in the domestic economy. For example, we should be surprised if we suddenly see the FirstBank lending to a sector that is non-existing in Nigeria. If we have five per cent exposure to diamond and it is not something that is available. So, if you look at the sectors we mentioned, they are critical sectors for this economy,” he added.

He reiterated that oil and gas is the backbone of Nigeria economy adding that telecoms in the last 12 years has become one of the most dominant sectors of the economy and one of the sectors that has demonstrated the potential growth of opportunity that is possible in this economy. The same thing with manufacturing; Nigeria’s success is the emergence or re-emergence of the middle class. For middle class, the most important thing is that they have the disposable income and because they have disposable income, they also need to have goods and services.

Capital Adequacy Ratio

Adeduntan said FirstBank’s Capital Adequacy Ratio remains strong, adding that the lender raised $450 million tier two capital last July and repositioned its business model in a manner that enables it continue to grow despite regulatory challenges.

He explained that Basel II and Basel III Capital Adequacy Ratio are banking accords that have been implemented in other jurisdictions adding that FirstBank finds it exciting that the CBN has rolled out its programmes.

“We believe it is the right thing to do. For us at FirstBank, we are doing all that is possible to ensure that the institution is Basel-compliant. Capital Adequacy Ratio is one of the ways regulators monitor banks. What is also very important to highlight at this point is that first and foremost, internally, we do have a capital management framework.

CBN also made it mandatory for all banks to implement internal capital adequacy assessment process and what that policy does is that it compels management and the board of directors of every bank to look at their capital position, to look at their business strategy and the growth forecast, carry out forward looking kind of analysis, say where will my business be and what level of capital do I require if this or that happens? The framework also forces you to also look at stress scenario, what if this happens, what happens to my capital?

If you look forward where is my business going and what level of capital do I require and to support that business? The framework also forces you to also even look at the scenario to see what if something happens to my capital position,” he said.

The executive director disclosed that FirstBank went into the international financial market in July 2014 during which it successfully raised $450 million of tier two capital. He explained that there is opportunity for banks to capitalise their retained earnings subject to audit, and that also helps lenders to beef up their capital adequacy ratio.

“At the end of the day, we would take the most cost effective approach that helps the institution.

Where we are today is that our capital adequacy ratio is fine and like I said, based on the $450 million additional tier two capitals we raised, our capital adequacy is fine,” he said.

ATM charge

The CFO explained that withdrawal by customers from the ATM owned by their own bank continues to be free adding that as a customer of FirstBank, one can come as many times as possible to its ATM to make free withdrawals.

“Where the challenge sets in is where people go on to other peoples’ machines to make withdrawals. Even at that, you are allowed to withdraw at least three times for free in a month. It is only when you have withdrawn more than three times that the charges set in. The way it works is that the bank, your own bank, gets charged each time you make withdrawal from another bank’s ATM.

Somebody needed to be compensated for that but the fundamental thing is that when you withdraw from the ATM belonging to your own bank it is free. When you withdraw up to a certain limit even from the ATM that belongs to other banks, it is also free,” he explained.

He said that ATMs cost money, to maintain them also cost money. “The fundamental message is that if you use machine belonging to your bank, it is essentially free. Even when you are in the location where the nearest ATM is not the one from your bank, it is still free up to a certain number of times. So I think that is the most important thing,” he said.

Continuing, he said FirstBank is the leader as far as ATM is concerned. “We actually own about 25 per cent of the ATM in the entire network. Truly speaking, for our own customer, they are able to access our ATM at virtually all the critical locations and we are also very strategic when we position our ATM such that in most cases, we will expect our customers to have an ATM relatively close to wherever it is that they would like to withdraw cash,” he added.